Last week (8/7-8/11), the US dollar index rose by 0.8%, while non-US currencies experienced a widespread decline. The Japanese yen depreciated the most, falling by 2.3%.

【Source: MacroMicro  Date2023/8/7-2023/8/11】

【Source: MacroMicro  Date2023/1/1-2023/8/11】

Last week, the euro/dollar initially rose and then fell, ending with a 0.6% decline. Specifically, after the release of US CPI data on Thursday, the euro/dollar briefly climbed to 1.106, but subsequently retreated due to hawkish comments from Federal Reserve officials. On Friday, unexpectedly high US PPI data widened the German-American yield spread, causing the euro/dollar to decline.

【Source：MacroMicro 】

In the short term, attention is focused on the impact of market risk appetite on US bond yields. A surge in bond yields would make the US dollar more likely to rise than fall. Currently, there is a prevailing hawkish sentiment within the Federal Reserve, with many officials believing that there is still much work to be done to bring the inflation rate back to the 2% target. Additionally, the US government has increased bond issuance to address the growing deficit, which has also impacted market sentiment and led to another rise in US bond yields.

Looking at the long term, changes in expectations for interest rate hikes by the central banks of Europe and the United States, as well as the relative performance of their economies, remain key factors influencing the euro/dollar exchange rate.

Market expectations for an interest rate hike by the European Central Bank (ECB) within this year are still around 3.8% (indicating one more rate hike), while expectations for a rate cut are only present in the second half of '24. On the other hand, there are no expectations for an interest rate hike by the Federal Reserve within this year, with rate cut expectations in the first half of '24. This divergence in expectations will support the euro's trend in the medium to long term.

Mitrade Analyst：

Pay attention to this week's Federal Reserve meeting minutes and US retail sales data. If US July retail sales data meets expectations, market expectations for a soft landing of the US economy may increase further, thereby supporting the US dollar and causing the euro/dollar to decline. Conversely, if the data significantly falls short of expectations, it will increase recession concerns, which may weaken the US dollar and lead to an increase in the euro/dollar exchange rate.

From a technical perspective, the euro/dollar encountered resistance after touching the 21-day moving average, and the moving average indicator shows a sell signal. The key level to watch is 1.09, and if this key level is breached, the probability of further decline in the euro increases.

【Source：TradingView】

Last week, the Japanese yen fell for five consecutive days, with the USD/JPY rising by 2.3%. The main reasons behind this were the widening yield spread between US and Japanese 10-year government bonds and disappointing Japanese wage data.

【Source：MacroMicro】

The USD/JPY reached a high of 145, and on Monday morning of this week, it broke the key level of 145, depreciating to a new low for the year.

It is worth noting that this price is approaching the levels seen during the intervention in the market by the Bank of Japan in 2022. In September of last year, when the yen exchange rate exceeded 145, Japanese authorities intervened in the currency market and pushed the yen rate back to around 140.

Traders are starting to anticipate possible actions from Japanese authorities, and most are remaining vigilant for any signs of the Bank of Japan's "currency review." This involves central bank officials calling traders to inquire about the buying or selling prices for the yen to understand the potential costs and impact of government intervention in the market. Another signal could be a trilateral meeting between the Bank of Japan, the Japanese Ministry of Finance, and the regulatory agency, the Financial Services Agency.

Mitrade Analyst：

This week, key economic data from Japan and the United States will be closely watched, such as Japan's GDP and CPI, and U.S. retail sales. Surprisingly strong data could increase volatility in the USD/JPY exchange rate.

From a technical perspective, the USD/JPY has risen to a crucial level near 145. If it can successfully break above this level, there is still potential for further upside. Conversely, if it fails to sustain its upward momentum and retreats, there is a downside risk for the USD/JPY, with support seen around 142.

【Source：TradingView】